Capital Trust, Inc. (

CT

)

Q2 2011 Earnings Call

August 4, 2011 10:00 am ET

Executives

Stephen D. Plavin – Chief Executive Officer and President

Geoffrey G. Jervis – Chief Financial Officer, Treasurer and Secretary

Analysts

Chris Mittleman – Mittleman Brothers

Presentation

Operator

Hello, and welcome to the Capital Trust Second Quarter 2011 Results Conference Call.

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Before we begin, please be advised that the forward-looking statements contained on this conference call are subject to certain risks and uncertainties, including but not limited to, the continued credit performance of the Company’s loan and CMBS investments, its assets/liability mix, the effectiveness of the Company’s hedging strategy, the rate of repayment of the company’s portfolio assets and the impact of these events on the Company’s cash flow, as well as other risks indicated from time-to-time in the Company’s Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events or circumstances.

There will be a Q&A session following the conclusion of this presentation. At that time, I will provide instructions by submitting your question to management.

I will now turn the call over to Steve Plavin, CEO of Capital Trust. Please go ahead.

Stephen D. Plavin

Thanks, Megan. Good morning, everyone. Thank you for joining us and for your interest in Capital Trust. With me are Geff Jervis, our Chief Financial Officer; and Tom Ruffing, our Chief Credit Officer and Head of Asset Management.

Last night, we filed our 10-Q and announced our results for the second quarter, our first full quarter of operating CT Legacy REIT, the entity formed March 31, 2011 to hold our legacy assets.

Geff will take you through our quarterly results and also discuss our adjusted balance sheet and operating results. I will focus my remarks on Capital Trust and the commercial mortgage market.

Post-restructure, the financial condition of Capital Trust is greatly improved. We have isolated the downside risk associated with our peak of the market balance sheet assets while maintaining management control and a significant ownership interest in the portfolio. By having established the necessary time to work and collect our legacy assets in a market that should improve over time, we will maximize the recovery for all legacy-REIT stakeholders, the largest of which are the CT shareholders.

CT Investor Management Company or CTIMCO, our wholly-owned management subsidiary, maintained strong capabilities at lending, investing, asset management, and capital raising. The CTIMCO manages its public company parent, the Legacy asset REIT, four CT-sponsored private equity funds, five CDOs, and loan workouts and restructuring for the CMBS special servicer.

This past quarter the growth for CT Legacy REIT exemplify the asset management strength of our platform. During the quarter, CT Legacy REIT collected $207 million on 11 loans, representing 99% of our recovery. Although there is still significant credit challenges within the Legacy REIT portfolio, particularly with the 2006, 2007 originations, we are confidant that Tom and his team will maximize recoveries.

As for the market in general, volatility in global financial markets and economies combined with uncertain domestic economic and employment growth prospects have chilled the recovery in commercial real estate financial markets. The CMBS market has had its first significant setback since it restarted in 2009. Although, credit performance of current ventures of CMBS is likely to be very strong, subordination level already started to contract and some investors started feeling a little déjà vu. So when S&P withdrew its ratings on a deal about to close in an environment in which investors assume ratings would be a better governor than in the past, investor confidence would further shaken.

The reality is either legacy borrowers nor investors have fully recovered from the shock of the 2008 CMBS market collapse and the constant reminder provided by continued week credit performance of many legacy securitizations. As a result investors and borrowers have been slow to return to the CMBS market and now the market they contract before it starts to grow again.

And with lending companies approaching peak origination levels, they cannot take up the flag from the declining CMBS and still weak bank market. These market forces combined with the maturity of many peak of the market financing should create a better more opportunistic investment environment. With over $80 billion of loans still in special servicing and values improved from trough levels, there will be fewer extensions and more loans (inaudible) foreclosures that will generate additional transactions.

We are active as an investor and a special servicer on large structured financing. It will be on the frontlines of the several upcoming workouts. While the specific opportunities in commercial mortgage finance will evolve a change over time, we believe that the scale of the opportunity is great and that our platform is very well positioned to capitalizing these opportunities. There will be need for mezzanine financing to fill the gap on recapitalizations and acquisitions as the peak of the market five-year loans mature.

The floating rate market, a historic area of strength for CT is still dislocated and highly inefficient. The commercial banks, CMBS originators and CMBS investors, have not returned to the floating-rate market, which is now significantly funded by private bridge lenders with the high cost of capital.

We also see an expanding investment opportunity in the low LTD mezzanine segment, particularly as the CMBS market struggles to absorb large offerings. We continue to be active at this space through a high-grade funds and related separate accounts, providing low risk financing, genitive investment-grade loans on core assets.

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